Mar-a-Lago Accord: A Bridge Too Far

Last weekend, a client reached out concerning developments in the U.S., specifically the proposed Mar-a-Lago Accord and what it could mean for tariffs, U.S. debt, and the strength of the dollar. These are fair questions and reflect broader conversations we’re having across our teams as we continue to evaluate opportunities and risks associated with USD assets.

The proposal draws immediate comparisons to the Plaza Accord of 1985, a coordinated effort by the U.S. and its allies to reduce the value of the dollar and improve trade balances. While the goal may sound familiar, our view is that the approach this time is entirely different, and in many ways, far more ambitious.

Given the growing attention on this topic, I wanted to share some perspective ahead of a broader discussion with our Private Wealth and Asset Management teams this week. What follows is a high-level look at what’s being proposed, how it diverges from historical precedent, and why we believe it warrants close monitoring, especially for Canadian investors with U.S. exposure.

A Familiar Premise, A Very Different Playbook

Both accords, old and new, share a common premise: reduce the value of the U.S. dollar in an orderly way so that imports get more expensive, exports cheaper, and the trade deficit shrinks. In theory, not a bad idea, but the devil (as always) is in the details.

The Plaza Accord (1985) 

In September 1985, the G5 (Germany, France, the UK, the US, and Japan) met at the Plaza Hotel in New York to coordinate a devaluation of the US dollar (USD). 

• Since 1980, the USD had risen 75% on a trade-weighted basis. 
• The Plaza Accord was a collaborative effort and did not involve tariffs. 
• By 1992, the USD had fallen by just over 50% on a trade-weighted basis, returning to levels slightly above those in 1980. 
• As of April 19, 2025, the USD is approximately 25% higher than its 1992 low. 
• Japan, with a highly appreciated yen, acquired major U.S. assets such as Pebble Beach (1990) and Rockefeller Center (1990). 
• The late 1980s led to a bubble in Japanese stocks and real estate, resulting in the “Lost Decade” of the 1990s. 

The Mar-a-Lago Accord (Proposed 2024) 

• Represents a unilateral U.S. policy approach, unlike the multilateral Plaza Accord. 
• Designed to serve U.S. interests through several key initiatives: 

1. Impose unilateral tariffs on all trading partners to reduce the trade deficit and fund tax cuts in the US budget. 
2. Require allied nations benefiting from US security protection to help finance it through tariffs and investment in the U.S. 
3. Weaken the dollar to boost export competitiveness, while maintaining the USD as the global reserve currency. 
4. Convert existing U.S. Treasury holdings of foreign nations into 50–100-year zero-coupon bonds with no liquidity. 

While the goal may be the same, the steps to get there look very different. For some context, let’s examine the historical value of the U.S. dollar versus other currencies.

In early 1985, the U.S. dollar peaked at a relative value of 160, the highest on record. By 1992, it had dropped to under 80, down more than 50%. Since then, it’s moved between 75 and 120. Today it’s sitting around 100. High compared to 2007, but still below where it was in 2002.

The Canadian dollar hasn’t been immune to this kind of volatility either. Since the early 2000s, we’ve swung from a low of $0.62 USD to over $1.05, twice, in fact, in 2007 and 2011.

What's Being Proposed Today?

So, how does Stephen Miran, current Chair of the Council of Economic Advisers and author of the Mar-a-Lago Accord, see this playing out?

There are several far-fetched elements to this plan, but the most notable concerns for investors include:

• There is an intentional effort to reduce the value of the USD.
• Tariffs are only one part of the plan. The broader idea is to make countries provide concessions to the U.S., both for security guarantees and access to trade, by financing U.S. debt with long-term, illiquid zero-coupon bonds that pay no interest.

It’s an unconventional strategy, one that shifts the burden of today’s deficits far into the future, while minimizing immediate cash outflows. If this hadn’t been documented by credible sources, you could be forgiven for thinking the Illuminati had returned to wreak havoc on the financial world.

The High Stakes of Compound Interest

This brings us to a related and fascinating point about compound interest. There’s a quote often attributed to Albert Einstein:

It’s the last part of that quote that intrigued me: “He who doesn’t understand it... pays it.” The 100-year zero-coupon bond would be a fearsome beast. Right now, 30-year U.S. Treasury bonds are yielding close to 5%.

Let’s assume, somehow, the Treasury managed to convince lenders to provide $1 trillion toward the deficit in 100-year zero-coupon bonds at 5% (a stretch, given the duration and lack of liquidity).

Even at that rate, a $1 trillion bond issued in 2025 would mature in 2125 at $132 trillion. To put that in perspective, $1 trillion today is only about half of one year’s U.S. deficit, or roughly 3% of the total debt.

Now, imagine the market demands 6% instead. That same bond would mature for $339 trillion.

A 1% difference in rate results in 2.6 times more debt at maturity. That’s the magic, and the mystery, of compound interest.

So, Who Would Agree to This?

One of the most puzzling elements of the proposal is the assumption that countries would voluntarily participate.

• Why would countries agree to hold illiquid zero-coupon bonds from a country with significant government debt and a recent history of breaking trade deals? 
• If Europe, Japan, and Canada are already increasing their defense spending, why would they want to contribute additional funds for a U.S. security blanket, especially in a time of war (Ukraine as an example)? Could they rely on that blanket? 
• Trump has already announced crippling tariffs (some now paused). Are countries willing to invest in the U.S. and buy its long-dated bonds under the threat of economic intimidation? 
• If the purpose of the accord is to devalue the USD, as it was under the Plaza Accord, why would countries or investors want to hold U.S. assets, including bonds? 

From a Canadian perspective, it’s hard to imagine giving up access to interest-bearing, liquid Treasury securities in exchange for 50-100 year zero-coupon bonds. There seems to be very little incentive, particularly in the absence of coordinated negotiation.

It’s also worth noting that when the Plaza Accord was signed, the U.S. engaged its allies through dialogue and mutual benefit. That same cooperative spirit seems noticeably absent today.

What We’re Asking Ourselves

The real question now is: How should investors, especially Canadian investors with U.S. exposure, respond if this gains momentum?

That’s exactly what I’ll be discussing with our asset teams: Does this change our current thinking around how much we allocate to U.S. assets? Does it influence how we hedge currency risk? Or both?

This is still an early-stage conversation, but one we believe is important. While the Mar-a-Lago Accord hasn’t yet been adopted or broadly accepted, the intent behind it is fairly clear, and it could have meaningful implications if pursued.

We'll continue to monitor developments and adjust our thinking accordingly, with the same disciplined, risk-aware approach we’ve always taken.

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